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Don't Blame Gold for the Great Depression–Blame the Brits!

That's the sort of title I wanted City A.M., a free-market-oriented London financial daily, to give to this opinion piece arguing that "the gold standard" wasn't to blame for the Great Depression. Anything to get British readers' attention. But no dice: I guess they thought it a little too cheeky.

And here is an article by Barron's Gene Epstein, portraying me as a sort of Gran Poobah of anti-Fed "heretics" (and failing to mention, alas, either Bill Lastrapes or Larry White, co-authors of the forthcoming J. Macro paper referred to in the article). The comments are worth reading, if only to see evidence of the "don't trouble me with facts" attitude so many people have when it comes to staking out positions on matters of monetary policy.

  • Paul Marks

    I have popped on a comment on to the piece that was intended for City AM. Why did not Allister Heath go for it? He is a decent man – even though "The Business" not going well may hit him hard emotionally.

    As for you as the Grand Poobah of the anti-Fed heretics….

    Nah – you are kind and decent moderate (who goes out of his way to try and be respectful to Walter Bagehot and so on).

    If you were not such a nice guy I would not scream with intolerant rage at you so much.

  • Tom Papworth

    Britain had a relatively mild Great Depression, of course.

    Nothing like the turmoil in the States.

  • David Stinson

    Good article.

    This seems like a good time to ask (as I have for sometime been meaning to) whether you could recommend a few books on the international monetary history of the period, say, from the beginning of the classical gold standard until WWII, with an emphasis not so much on a purely historical account but also on an analysis of the economic dynamics?

  • Paul Marks

    Ben Anderson's work on the 1914-1946 period is very interesting (a real insiders account – and I mean that in a good way, he was up close to events and writes about what he knows).

    I tend to take to a harder line than Anderson does (for example, to me, the suspension of bank cash payments in 1907 is simply unacceptable – contract breaking), however it is a work well worth reading.

    For the general period that you mention – Friedman's "Monetary History of the United States" is worth a look (Chicago School though it is).

    Of course, Milton Friedman is no Austrian School man.

    For him, the monetary policy post 1929 that is the problem – whereas (to an Austrian School person) it is the monetary policy before 1929 (the credit-money bubble "boom") that is the problem.

    And on specifics – to Milton Friedman, people like B. Strong of the New York Fed, and Irving Fisher (of Yale) are wonderful – whereas, to Austrian School people, Strong and Fisher are terrible (utterly terrible).

    Miton Friedman even likes the "Bank of the United States" (a deeply dubious outfit, that traded in mortgage backed stuff and other ****). Indeed Friedman seems to think that this commercial bank (the name was chosen to make it sound official – in order to con immigrants) was brought down by antisemitism (rather than by its own uselessness).

    However, it is important to read both sides – Chicago School people (like Friedman) and even Keynesians, as well as Austrians.

    As for modern Austrian school stuff…..

    Well two main sources.

    The Ludwig Von Mises Institute (just go on their website and see what you like – on monetary policy, the late Rothbard and co were first class).

    And (for another point of view) – this website.

    People such as George Selgin have published stuff directly relevant to what you want to study.

    And you should read it.

    I am much more of a Rothbard man (on monetary policy and banking, although I could not stand the man on other matters, such as general, military and other, history – because he cherry picked, he only talked about the facts that were convienent for his cause, never facts that might pose a problem for it).

    However, Selgin and co should be read.

    Just as (as Hayek always said) both the "Currency School" and the "Banking School" writers should be read.

    Indeed the Currency School made a fundemental error – they thought if they could get rid of (or greatly limit) "bank notes" they could prevent boom-busts.

    However, as Ludwig Von Mises (and others) have pointed out, bank notes are not the central matter of concern. What actually matters is "is there a credit bubble" (are their loans that are not from real savings) – not "are banks producing bank notes".

    There a many ways to produce a credit bubble (whilst still formally keeping to a gold "standard" – one reason why I hate the word in this context), some of which have nothing to do with bank notes.

    And there is nothing fundementally wrong with bank notes anyway – not if they are straight.

    For example if I have 100 ounces of copper (of a certain purity and so on) and I want to produce 100 notes each saying "this note represents one ounce of copper" upon it, there should be no government regulation preventing me producing the note.

    What matters is "do I have the copper" not "do I have government permission to produce the note".

  • damag0r

    I'd really like to read this opinion piece but the link no longer works. Is there any other place I can find it?